This post is Part Four in a four-part series discussing estate planning for Millennials. You can find links to the other posts in the series here.
Like it or not, marriage is a business proposition.
"But isn't it also about love?" Yes, yes. Love and feelings and all that stuff. But marriage can also have a huge financial impact on a family.
Marriage (or, rather, not being married) can have an equally huge impact on an estate plan.
According to U.S. Census Bureau data, the number of adults in cohabiting (unmarried) relationships relationships is up 29% since 2007. That's about 18 million adults, roughly half of which are younger than 35.
With this rising trend of cohabitation among Millennials, it is important — perhaps more now than ever — to understand the estate planning implications for unmarried couples.
Do unmarried couples need an estate plan?
Remember that there are two sides of estate planning: What happens to your STUFF when you die and who takes care of your SELF when you become incapacitated.
Those goals do not change when you get married, so an estate plan for an unmarried couple usually looks about the same as an estate plan for a married couple. It is just much more important that an unmarried couple has an estate plan in the first place.
To understand why it is so important for unmarried couples to have an estate plan, think of all the benefits our legal system affords married couples:
- Social Security benefits
- The right to decline to testify against your spouse
- Immigration status
- Joint bankruptcy filing
- Joint tax filing
- Homestead rights
- Hospital visits
See what I mean about marriage being a business proposition? While marriage recognizes and provides certain legal rights to individuals, unmarried couples may not have those same rights or, at the very least, may find their rights very difficult to enforce.
What if you are unconscious in the hospital and your partner wants an update? Without a power of attorney or HIPAA waiver, they will likely have a hard time getting the information they need — and they will certainly not have the legal authority to take care of your SELF.
What if you die? Your partner will not be entitled to any Social Security or other benefits, any notice of probate proceedings, or any homestead rights typically granted to legally married spouses. Without a well-crafted estate plan, your partner will have no right to your STUFF.
The law favors marriage. So if you want to provide for your partner after your death and enable them to take care of you if you become incapacitated (and vice versa), you need an estate plan that gives them a legal basis to enforce those rights.
So what kind of estate plan do we need?
While every estate plan looks different, here are five estate planning tips or considerations that all unmarried couples should keep in mind:
1. Re-title real estate to avoid probate.
When it comes to your STUFF, a good estate plan ensures your assets will avoid probate and will go to the people you want to have them. (More about this topic in Do I Need Probate to Get My Inheritance?) Without legal documents providing for the transfer of title outside of probate, rigid intestacy laws will control who receives your assets through probate.
There are several different ways to avoid probate for real estate. First, you can transfer your property to a Living Trust for yourself or to a joint trust with your partner. After your death or incapacity, your partner could then administer your estate as successor trustee.
(Read our explanation of the differences between wills and trusts.)
Second, you can name your partner as a joint tenant. Joint tenancy is a type of ownership by which two or more people own property together. Upon the death of a joint tenant, his or her interest automatically passes to the surviving joint tenant(s). While there are potential problems with naming a joint tenant as opposed to using a Living Trust, it can avoid probate.
2. Appoint your partner as Attorney-in-Fact.
A Durable Power of Attorney is one of the most critical estate planning documents you can (and should) have. Whereas other documents generally only affect others after your death, a power of attorney affects you during your lifetime.
By naming your partner as Attorney-in-Fact through a power of attorney, you can ensure that he or she has the ability to act for you in financial and/or medical situations in the event you cannot act for yourself.
(Get a full explanation of powers of attorney by reading What is a Power of Attorney?)
You should also enable your partner to make end-of-life decisions for you by naming them as your health care proxy in an Advance Directive for Health Care. This document spells out your wishes regarding life-sustaining treatment and artificially administered nutrition and hydration.
3. Name partner as "pay-on-death beneficiary."
Insurance policies, retirement plans, and even bank accounts often allow you to name one or more individuals (e.g., your partner) as a "pay-on-death beneficiary."
Let's say your partner lists you as the pay-on-death beneficiary of his bank account. After his death, you can take a copy of his death certificate to the bank, along with your own identification, and the bank will transfer the funds or re-title the account into your name.
While there are downsides to naming pay-on-death beneficiaries (e.g., assets may still be subject to probate if beneficiary is deceased, can't control the exact timing of distributions, etc.), it is better than nothing. These designations also take precedence over a will or trust, so review your pay-on-death beneficiaries regularly to ensure they accurately reflect how your want your estate distributed.
4. Create a digital estate plan.
Technology has changed everything — even estate planning. With the popularity of Facebook, e-mail, cryptocurrencies, and other online properties (e.g., this website), it is vital that you include digital assets in your estate plan to enable your representatives to access and/or dispose of your online accounts after your death.
Laws regarding the disposition of digital assets vary from state to state, so we recommend you talk with a qualified estate planning attorney in your state before executing a digital estate plan. You can also check out our general guide to help you create your digital estate plan.
5. Write a letter of instruction to your partner.
A letter of instruction is designed to tell your partner or other representatives everything they need to know to manage your estate. What subscriptions or services need to be canceled? What bills need to be paid? Where do you keep the key to your safe deposit box? Where do you keep your assets? What family or friends should they notify of your death?
Giving these instructions can make it much easier for your representatives to properly manage your estate after your death, particularly if your partner does not know much about your family finances, business dealings, etc.
Additionally, you should have an estate planning "fire drill" to let the rest of your family know that you have included your partner in your estate plan. If your parents, for example, do not know you have a partner (or if they do not know you consider yourselves spouses), they may unintentionally cause problems with your medical care or the administration of your estate.
What about common law marriage?
There are many misconceptions about common law marriage, and it is not recognized in every state. But in Oklahoma, generally speaking, a common law marriage is created when a couple is in a relationship with the intent of being married even though they have not filed a marriage license and have not been married in a ceremony.
Importantly, you and your partner do not have to live together in order to have a common law marriage. Cohabitation is not an absolute requirement. Likewise, simply living together does not, by itself, establish a common law marriage.
Courts analyze a number of different factors to determine if a common law marriage exists. In the estate planning context, that usually happens during probate. Although you do not need to get married, you can (and should) avoid a lot of uncertainty and conflict with the estate planning tips suggested above, rather than relying on the definition of common law marriage.
You should also consider what happens in the event of a breakup. Since there is no common-law divorce, a common law marriage must be dissolved the same way as a normal marriage: divorce proceedings.
To protect both partners in a common law marriage, couples should consider signing a prenuptial agreement or at least a "living-together agreement" that sets our who gets what an who is responsible for what in the event of a breakup.
Most people are afraid to even mention "prenuptial agreement," but it is a very useful estate planning tool. Especially with blended families or second (or third or more) marriages, a prenuptial agreement can lay out expectations and make any eventual divorce much easier on everyone involved.
Talk with your partner about estate planning.
There are many reasons couples decide not to marry, but failing to include your significant other in your estate plan can cause unintended consequences for them and for you. To learn how you can include your partner in your estate plan, contact the experienced Oklahoma City estate planning attorneys at Postic & Bates for a free, no-obligation consultation.
Additionally, download our FREE Estate Planning Guide, packed with 70 pages of information about estate planning, probate, and much, much more, by clicking the button below.
David M. Postic is the Vice President of Postic & Bates, P.C. His practice includes estate planning, probate, real estate, adoption, business law, and litigation.
You can email David through our Contact Us page or by calling our office at (405) 691-5080.
[As with all our posts, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]